Category: Macroeconomics

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel
  • My week on twitter: 34 retweets received, 1 new listings, 33 new followers, 40 mentions. Via: http://t.co/SPrAWil0 Sep 27, 2012

 

Energy

 

  • Natural Gas Cars Are On The Road; Potholes Remain http://t.co/T9KxgbCa Optimistic that CNG & LNG will get enough distribution 2b viable $$ Sep 29, 2012
  • United Airlines will study Delta’s refinery bid http://t.co/iHEuWvfp This will not end well; fundamentally different businesses $$ $UA $DAL Sep 29, 2012

 

Rest of the World

 

  • Japan Data Show Recession Risk Growing http://t.co/UArgdWd4 “Find someone who is optimistic about the economy & ask them how they can b” Sep 29, 2012
  • Shanghai Bonded Copper Stocks May at Record, Survey Shows http://t.co/MMrqmsmi Glut of gluts, what will China do with a flat economy? $$ Sep 28, 2012
  • Toyota Unplugs Electric Car Hype http://t.co/s36gMkcZ Indeed it is hype, better 2 run cars on Natgas or gasoline $$ less waste 4 now Sep 28, 2012
  • China Bankrolling Chavez?s Re-Election Bid With Oil Loans http://t.co/y3tAN7WF China wants oil, Chavez wants $$ , a match made in… Sep 28, 2012
  • SNB Disputes S&P Estimate of Bond Purchases http://t.co/eC1AxRkc Well of course they would dispute it, harms their policy credibility $$ Sep 28, 2012
  • Spanish Bonds Slump as Marchers Plan Further Protests http://t.co/Sq3eiO1n Eurozone is a political construct, will agreement persist? $$ Sep 28, 2012
  • Why Asian Airlines Reign Supreme http://t.co/yNcjYfce It is amazing how great service drives the rankings $$ Sep 28, 2012
  • The real extent of China?s economic hard landing http://t.co/n6g2jBCP By one measure, China’s real GDP growth rate is 1.6% $$ Sep 24, 2012
  • Is China Burning? http://t.co/PxfPOebV China stirs up anti-Japanese hatred to divert attention away from the weakening economy $$ Sep 24, 2012
  • India Bids for ConocoPhillips Assets in Canada http://t.co/cIc6wlut Spidey sense says India will get the worse of it $$ FD: + $COP Sep 24, 2012
  • Aussie Debacle Flags China Hard Landing as Iron Market Melts http://t.co/8PKnupSl China sneezes, the Australians catch a cold $$ Sep 24, 2012
  • How weak must the Danish economy be, for them to do this? Are their banks in that bad of a shape? $$ http://t.co/vNR7Utt5 Sep 24, 2012

 

Credit Markets

 

  • Junk Bonds in US Poised for Biggest Retreat in 4 Months http://t.co/rIqU3rjt 2 early 4 a washout; no significant defaults on the radar $$ Sep 29, 2012
  • U.S. 30-Year Mortgage Rates Fall to Record Low of 3.4% http://t.co/EB2UZaic Those that r not inverted can refinance; tough 4 rest $$ Sep 28, 2012
  • Mortgage-Bond Spreads Cap Biggest Weekly Drop Since December ?08 http://t.co/cjGISver Anticipates Future Fed buying, doesn’t help much $$ Sep 22, 2012

Central Banking

 

  • Money For Nothing: Inside the Federal Reserve http://t.co/QoHuWfGb Independent, non-partisan, non-conspiracy-theorist documentary comingsoon Sep 29, 2012
  • Bernanke Put: Beware of Easy Money http://t.co/bPsdilQM The lure of free money brings out the worst in all of us. $$ Sep 28, 2012
  • Plosser Says QE3 Risks Fed Credibility, Won?t Boost Jobs http://t.co/ffkpU2Jh Right; once we r @ the zero bound the Fed is impotent $$ Sep 28, 2012
  • Fed Helps Lenders? Profit More Than Homebuyers http://t.co/CYz6O8r0 Offering 2buy RMBS benefits existing holders more than anyone else $$ Sep 28, 2012
  • Sean Fieler: Easy Money Is Punishing the Middle Class http://t.co/Lg2yzUCs Who gets benefits of productivity improvement? Ppl or Govt $$ Sep 28, 2012
  • A time of hoarding and inflation fears, 1930s edition http://t.co/wOkNf0Uj @izakaminska tells us about inflation worries in the 1930s $$ Sep 25, 2012
  • Signs Of The Gold Standard Are Emerging From Germany http://t.co/YPLrNcvz Not likely; would be interesting 2c Germany go Euro -> Gold $$ Sep 24, 2012
  • ‘Free’ Checking Costs More http://t.co/QXxPaQCH Another casualty of Fed policy, which disproportionately hurts those less-well off $$ Sep 24, 2012

 

US Politics

 

  • U.S. Unease Over Drone Strikes http://t.co/Hlc2djCz This is yet another reason y much of the Muslim world hates the US $$ Sep 28, 2012
  • US Ties Libya Attack to ‘Powder Keg’ in Mali http://t.co/998UPNLd When did the Obama administration know this, y wasn’t it disclosed? $$ Sep 28, 2012
  • Ryan at the AARP http://t.co/ZgXiPrkr He didn’t trim his ideas and still won applause. AARP leaders more liberal than members $$ Sep 24, 2012

 

Market Dynamics

 

  • Where stock market will be in fall of 2016 http://t.co/AolvDXon Seiver’s model indicates a flat market for the next four years $$ Sep 29, 2012
  • Wrong: An Easy Strategy For Bulking Up On Yield http://t.co/HYbdXqzT Better to buy companies w/strong dividend capacity than high divs $$ Sep 28, 2012
  • New Wave of Workers Tries Novel Approach: Save More http://t.co/sE9pp03d Everything old is new again; save $$, do not rely on returns Sep 28, 2012
  • Ken Fisher: Bull Market Is Halfway Done http://t.co/xDEa0MXq I am a moderate bull now, but I find that large cap leadership could fail. $$ Sep 28, 2012
  • Are financial advisers worth their fee? http://t.co/HdRYJ3ak Gamma: value of protecting an individual from buying high & selling low $$ Sep 28, 2012
  • Prospects for Stock and Bond Returns Are Dim http://t.co/IYAVPFAU The performance difference will depend on inflation vs deflation $$ Sep 24, 2012
  • Pension Crisis Looms Despite Cuts http://t.co/9ZW8eUeR Eventually state constitutions will be amended 2 roll back existing benefits $$ Sep 22, 2012
  • Borrowing Against Yourself http://t.co/kB7IVuN2 Debt against investments is usually a bad idea unless ur a specialist in the business $$ Sep 22, 2012

 

Miscellaneous

 

  • Auto-Insurance Cost to Rise 2.8% to $839, Group Says http://t.co/8XLCC4CE Insurance companies pass costs & reduced interest through $$ Sep 28, 2012
  • Scientific Reproducibility: Begley’s Six Rules http://t.co/8EkCDsMP Following the 6 rules would reduce the # of articles published $$ Sep 28, 2012
  • Gordon Moore’s journey http://t.co/PHYlU3Nq Long Q&A w/a founder of Intel; An accidental entrepreneur who knew his weaknesses $$ FD: + $INTC Sep 24, 2012
  • Bronte Capital?s short waves http://t.co/EHhxTO4j Do not underestimate John Hempton; bright guy. Very good @ spotting bad ideas/frauds $$ Sep 22, 2012
  • Yale Versus Norway http://t.co/aSF8PEZR Worth a read. My sympathies r w/Norway here, but I fear they r tooting their horn @ a bad time $$ Sep 22, 2012
  • Cheating Upwards http://t.co/UtDtRjSD Children r less ethical now than 35 years ago, who were less ethical than 35 years ago, who were… $$ Sep 22, 2012
  • Push to Let College Students Carry Guns Picks Up Steam http://t.co/ke6zM1Si Who is responsible for my protection? Me or the Govt? Me $$ Sep 22, 2012
  • How to Stop Hospitals From Killing Us http://t.co/QKOsAOpy Should b known: going 2a hospital can kill you. 6th leading cause of death $$ Sep 22, 2012

 

Responses

 

  • @AOverheard Could b a good move, would have to review the Stat statements. I sold my shares at a split-adjusted $290. Buying debt:no-brainer Sep 29, 2012
  • @historysquared In the process of raising 8 children (5 adopted) I have seen 1) those w/limited abilities expand them 2) those w/great + Sep 29, 2012
  • @historysquared abilities waste them. 3) those w/great abilities improve them, & 4) those w/limited abilities improve only a little Sep 29, 2012
  • @groditi Of all the companies that I own $SPLS worries me the most. Stronger than bricks & mortar competitors, but can they beat $AMZN? $$ Sep 28, 2012
  • @munilass I think both of those insights r correct; algorithms r only as good as the problems they r applied 2; most people don’t like logic Sep 28, 2012
  • RE: @bloombergview Well reasoned.? No arguments here. $$ http://t.co/ChJ9BDib Sep 26, 2012
  • RE: @bloombergview “Luck” happens when preparation meets opportunity, There are exceptions like Sixto in South Africa? http://t.co/JmFQSDFB Sep 26, 2012
  • @volatilitysmile All financials, or just depositary financials… would agree if it is the latter. Sep 25, 2012
  • @pjackson @LaurenLaCapra @_tpr @japhychron As an example, consider the tax reform act of 1986; almost all tax preferences lost. $$ Sep 25, 2012
  • @pjackson @LaurenLaCapra @_tpr @japhychron Or prepare for the day of the “grand bargain” where everyone’s ox is gored 4 the good of all $$ Sep 25, 2012
  • @pjackson @LaurenLaCapra @_tpr @japhychron I think you have to plan for the day of crisis, so that you can be ready to say, “Do this.” $$ Sep 25, 2012
  • @MerrittJennifer @LaurenLaCapra It would not be immediate, but housing prices would fall, & so would refinancing $$ Sep 25, 2012
  • @pjackson @LaurenLaCapra @_tpr @japhychron Lauren asked what we would do, not what was possible. Only a crisis will see actions taken $$ Sep 25, 2012
  • @japhychron @LaurenLaCapra @_tpr so that Medicare covers less: cheap fixes & palliative care; state rtees: deal to reduce all benefits $$ Sep 25, 2012
  • @LaurenLaCapra @_tpr @japhychron Hard to fit into a tweet; phase out GSEs & Int ded, shrink FHA, ag lending, scale back SS, redo Medicare + Sep 25, 2012
  • @LaurenLaCapra @_TPR @japhychron Ultimate Q is how many things we *can/should* subsidize, particularly w/GSEs, entitlements, state rtee bens Sep 25, 2012
  • RE: @bloombergview When the government or Fed buys the securities of companies, it plays favorites. We should make th? http://t.co/3ndyaApd Sep 24, 2012
  • @GregorMacdonald Re: gold, have u seen this? http://t.co/5rPvqfEz Re: solar, have u seen this? http://t.co/tZiaP5mV Wonder what it costs? Sep 22, 2012
  • @abnormalreturns Stocks r correlated w/inflation expectations. Gold is negatively correlated w/real rate of interest. Facts. $$ Sep 22, 2012
  • @etpxp Hard to do a real test. Sep 22, 2012

 

Retweets

 

  • In praise of all-cash compensation. RT @EpicureanDeal: Defending the Indefensible http://t.co/a7pGhqLr featuring @LaurenLaCapra Obvious $$ Sep 22, 2012
  • RT @volatilitysmile: “a failed president is running slightly ahead in the polls of a challenger who has a real CV but is so politically … Sep 24, 2012
  • At low OASs?! No $$ RT @PIMCO: Gross: How many Treasuries you own is not the question. How many 3 and 3.5% 30 year mtges is. Own mortgages Sep 24, 2012

 

Too Much Investment

Too Much Investment

Posted on by David Merkel

Investment is usually a good thing, but it can be overdone.? How?? Let me list some of the examples:

  • China has overinvested in export industries, infrastructure, and housing, among other things at present.
  • The US and most of the developed world overinvested in housing, or at least, borrowed too much against it.? The same applies to the banking, investment banking and shadow banking industries.
  • The US invested too much in internet companies in the late 1990s.
  • The US invested too much in commercial real estate in the late 1980s
  • Japan overexpanded its heavy industries and real estate in the late 1980s.
  • Some invested too much in gold in the late 1970s.
  • Most developing nations invested too much money in national industrial champions for the purpose of import substitution in the 1960s-80s.
  • Banks lent too much to developing countries in the 1970s
  • The US put far too much money into growth stocks in the 1960s.
  • The Soviet Union continually overinvested from the 1960s until the 1980s.
  • People in the US put too much money into speculative investments in the 1920s.

If I really wanted to I could expand this list a great deal.? Almost every boom involves overinvestment, and often too much debt finance.? The above? are mostly macro examples of overinvestment, but it happens on the micro level as well.

  • People who are determined to get rich at all costs and lose in the process
  • People who are determined to get rich at all costs and win in the process, but lose many of the good basic things of life — family, friends, and deny themselves the enjoyment of their wealth.
  • Growth companies that invest in low ROE ventures rather than return cash to shareholders.
  • Growth companies misestimate more, and take chances that are not economic.
  • Companies that try to grow faster than their markets without a sustainable competitive advantage usually fail miserably.

It happens with governments as well, where they recharacterize spending as investment.? One particular example would be education, where little improvement comes from additional dollars spent.? Far better to move the curriculum back 60 years, and have students learn the basics.? More money is not needed; a better parenting culture is needed, plus a scope & sequence that is realistic in its pedagogy.

Fast growth is often bad growth if the return on equity for new investment is falling.??? That means that the carrying capacity of the current strategy is being exhausted.? It is even worse for central planners, who don’t have good data and keep throwing money at projects with little idea of the true effectiveness.

In vestment is a good thing when it serves an area of scarcity.? It is a bad thing when it serves an area of glut.? That’s the simple summary.? I may expand on this in a future article.

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Federal Reserve Policy / Treasury Yields

 

  • Great Tips-pectations http://t.co/nHWsNAFf Future inflation expectations are rising. Twenty year TIPS are flat to expected CPI $$ Sep 22, 2012
  • ‘Titanic battle’ over deflation about to sink long bonds: Gross http://t.co/trPfwKj3 Didn’t he say this in 2011 & lose? Try, try, again? $$ Sep 22, 2012
  • Lacy Hunt at Hoisington called the trajectory on Treasury yields years ahead of time. http://t.co/4e4Bu12W Sep 21, 2012
  • Former FDIC chairman Sheila Bair: TARP wasn?t necessary http://t.co/m4zJMkc5 Would have been better to let stockholders get wiped out $$ Sep 20, 2012
  • Fed?s Fisher Says U.S. Inflation Expectations Rising http://t.co/Qk4rUrNI Definitely: http://t.co/ZVA74EmF QEternal moved the TIPS $$ Sep 20, 2012
  • Stephen Roach: Fed?s Asset Purchases Are A ?Charade? http://t.co/nX4xh3zt QE is a theory that has no successes; Y does anyone believe it? $$ Sep 20, 2012
  • No Exit in Sight from Fed’s Bond Buying: Gundlach http://t.co/ULz27Bj8 It will be very difficult 4 the Fed 2 exit from their “stimulus” $$ Sep 20, 2012
  • The Road to Recovery http://t.co/P6Uz7CGP John B. Taylor is the man who should have been our Fed Chairman, unlike the pretender Bernanke $$ Sep 18, 2012
  • Fed’s ‘QE Infinity’: 4 Things That Could Go Wrong http://t.co/6CGNO5Yr Moral Hazard4Washington &Wall St, Hurting Confidence, May not work $$ Sep 16, 2012
  • Bernanke?s Battle for Jobs Eclipses Inflation Concerns http://t.co/bhRvXhZD How QE-inf will produce jobs is a mystery; OTOH stagflation $$ Sep 16, 2012
  • Mortgage-Bond Spreads Fall to Record Low as Fed Starts Buying http://t.co/LqcIYQhb Fed breaks agency RMBS mkt; some OASs drop to zero $$ Sep 16, 2012

 

Credit Markets

 

  • Credit rollovers & rally monkeys http://t.co/z4KH46ky Feels like 2005 in corporates, but w/easier money, & fewer securitizations $$ Sep 22, 2012
  • Company bond sales in US in Sept-12 total >$135.8B, fastest pace 4 any September & exceeds $124.6B sold in Sept-09 $$ http://t.co/EoKYwXrQ Sep 21, 2012
  • Private Debt Is Crippling the Economy http://t.co/km06r7TW Deleveraging has not taken place 2 the degree needed 2make the economy healthy $$ Sep 20, 2012
  • Risk Aversion Falls to Lowest Level in 2 Years http://t.co/ljJICAKM When risk measures r low, it is time to start being conservative. $$ Sep 18, 2012
  • Junk-Bond Yields Drop Below 7% for First Time, Index Data Shows http://t.co/VQBCbmq3 This is significant. Watch 4 leverage 2 grow $$ Sep 18, 2012
  • ETFs Overtaking Swaps for Junk-Bond Speculation http://t.co/DzTtYnKY If this continues, I suspect it will lead 2 ETF underperformance $$ Sep 17, 2012
  • Cheaper Student Loans. Who Knew? http://t.co/ZYnRjQDl About 2.6% of all borrowers?are using income-based repayment $$ 15%, 15 years Sep 17, 2012

 

Rest of the World

 

  • China Slowdown Seen Longer Than in Crisis by State Economist http://t.co/At79Hrfn Will take a while reconcile a decade of malinvestment $$ Sep 21, 2012
  • Japan launches QE8 as 20-year slump drags on http://t.co/J6hwv6rd Poster child 4 the efficacy of unlimited QE 4 economic stimulation $$ 🙁 Sep 20, 2012
  • In Spain, economic crisis fans Catalan separatism http://t.co/amLe8qwU Good for them & may they create their own currency & not the euro $$ Sep 20, 2012
  • Deposit Flight From Europe Banks Eroding Common Currency http://t.co/MwYRtlU3 Wouldn’t u withdraw deposits from Greek & Spanish banks? $$ Sep 20, 2012
  • Missed Chances Stoke Skepticism Over EU?s Crisis Fight http://t.co/rvBEndvm Works other way: earlier the break-up, smaller the damage $$ Sep 20, 2012
  • Sword-Bearing Islamist Signals Peril 4 Arab Democracies http://t.co/AXYYmzWn “Islam is a religion of peace” Overheard in a DC bar $$ Sep 20, 2012
  • EU Track Record Casts Doubt on Crisis Fight as Draghi Rally Ebbs http://t.co/rvBEndvm You can’t solve debt problems with more debt $$ Sep 19, 2012
  • Europe Takes On Gazprom at Last, Now Must Hang Tough http://t.co/tvFrJZ1k New delivery methods & supplies lessen need 4 Russian natgas $$ Sep 19, 2012
  • Europe Banks Fail to Cut as Draghi Loans Defer Deleverage http://t.co/fEQdByYH Same thing for the Fed. $$ policy inhibiting delevering Sep 19, 2012
  • Kaiser’s Postulate: Bringing Free Market Economics to South America http://t.co/61GS08I0 Brings an Austrian perspective 2 S. America $$ Sep 18, 2012
  • US military suspends combat patrols with Afghan forces http://t.co/BaKxm4Xn In this chess game, there are some pieces that r gray. $$ Sep 18, 2012
  • A little problem of maturity mismatch http://t.co/cBtSR1pC Many Chinese firms have financed long assets w/short debt. But how big is it? $$ Sep 18, 2012

 

Companies

 

  • The guys at LTCM weren’t that good w/math. Part of being an applied mathematician is knowing limitations of your models http://t.co/ice9Diju Sep 21, 2012
  • July 2012 severe enforcement actions; Capital One units pick up 3 http://t.co/ahdVPlpZ Interesting improving graph: http://t.co/jqwWxgCR $$ Sep 20, 2012
  • Microsoft, HP skirted taxes via offshore units: Senate panel http://t.co/tT2F453n What u get 4 creating a complex tax code. FD: + $HPQ $$ Sep 20, 2012
  • Bored? Consider this Total risk-taking value play http://t.co/Fioj9kEg FD: + $TOT very diversified geographically, seems cheap $$ Sep 20, 2012
  • Insurers are middlemen. They just pass the costs on. They have no need to do climate research. $$ http://t.co/pekiI2V8 Sep 20, 2012
  • Dow Corning Offers Workers Cold Showers w/Bugs to Build Sales http://t.co/u9lJIRPI Fascinating tales of voluntary adventures @ Dow Corning Sep 18, 2012

 

Politics

 

  • Welfare Reform as We Knew It http://t.co/E4VuZ1js Inside the Obama work waiver: It’s worse than Romney says. $$ Sep 20, 2012
  • Tortoises Manhandled for Solar Splits Environmentalists http://t.co/KyaQK3x0 Solar works well in sunny deserts: solar or tortoises $$ Sep 20, 2012
  • Why the Current Account Deficit Helps Explain the Economics of QE3 http://t.co/QlsAejh1 Explains similarities between CA deficit & QE-inf $$ Sep 19, 2012
  • Don?t Stick Taxpayers With Underfunded Corporate Pensions http://t.co/xj1VQMEn Against the liberalization of DB plan funding rules Sep 19, 2012
  • Snip, snip, snip. Cutting up AARP membership cards. The Baby boomers ask for too much through Social Security & Medicare. $$ snip, done Sep 19, 2012
  • Should the Eligibility Age for Medicare Be Raised? http://t.co/XlrNI3hR Yes, & by more than the suggestions in the article $$ Sep 19, 2012
  • Election Uncertainty Raises Odds Of Fiscal Cliff http://t.co/jFJ8jSsB Regardless of who wins, there will be gridlock. $$ Sep 18, 2012
  • Harry Reid Has a Glass-House Quandary on Taxes http://t.co/FbR1nlxl Let Congress begin doing detailed disclosure of their taxes $$ Sep 17, 2012

 

Economics

 

  • Gold shines http://t.co/Mm98E660 & http://t.co/xVg4N2MI $$ Sep 21, 2012
  • Big Data Upends the Way Workers Are Paid http://t.co/HzfrxhA6 Basic kindness & fairness goes a long way in retaining competent staff $$ Sep 20, 2012
  • Do New Job Tests Foster Bias? http://t.co/lBSpwygr Maybe, but it does prevent many good people from getting hired. Ppl >> algorithms $$ Sep 20, 2012
  • Harvard Losing Out to South Dakota in Graduate Pay http://t.co/UQcL5W1T Economics is relative; different things r valuable @ diff times $$ Sep 19, 2012

?

Finance

  • Farmer?s Daughter Haugerud Reaps Riches on Drought-Struck Corn http://t.co/CVFuX7kZ Know I’ve read about her b4, can’t remember where $$ Sep 20, 2012
  • For Superfast Stock Traders, a Way to Jump Ahead in Line http://t.co/hhJwKEdD This is important & may explain HFT & its profitability $$ Sep 19, 2012
  • Fidelity’s Abby Johnson faces challenges on many fronts http://t.co/5UTmmfbm Fidelity not just mutual funds but retirement plan services $$ Sep 17, 2012
  • When Playing It Safe Means Taking On More Risk http://t.co/6BtHsksh Safety is a function of price paid vs value & intrinsic solvency $$ Sep 16, 2012

Other

 

  • 6 Reasons Why Evolution Isn’t A Sure Thing http://t.co/UQVZuzH0 7. Which evolution r u talking about? Many versions, low agreement btw them Sep 20, 2012
  • Heavy rain in Baltimore now; supporting efforts to ship it to the Midwest $$ Sep 18, 2012

?

Responses

  • RE: For areas where there is significant data, they do research. Lots of it.? The models are huge and complex. The e? http://t.co/M7L2ZbC6 Sep 21, 2012
  • .@OVVOFinancial Part of what I am saying is economists don’t understand macro well. Free lunches rarely emerge; hard2remove accommodation $$ Sep 21, 2012
  • @felixsalmon I give proportionate to income, so if I were in Romney’s situation, it is likely I would be giving more Sep 21, 2012
  • . @OVVOFinancial I’m a skeptic. Economists didn’t expect stagflation in ’70s; did not tag the great moderation properly, or call the bust $$ Sep 21, 2012
  • Why this doesn’t work: too many mortgages are inverted & there is too much supply that will appear as… http://t.co/iGzYEV6c Sep 21, 2012
  • @fundmyfund If you can infinitely defer income recognition, or reclassify income, the tax rates don’t matter much $$ Sep 21, 2012
  • “I want to clarify what I wrote on my your last post. It wasn’t one of my finer comments?” ? David_Merkel http://t.co/l620hATS $$ Sep 21, 2012
  • RE: @bloombergview This is another reason why the definition of income matters more than tax rates. Taxes deferred ar? http://t.co/Bkh3LGjT Sep 21, 2012
  • RE: @bloombergview How do you distinguish between Dworkin who lost to Flynt, Carol Burnett who beat the National Enqu? http://t.co/FPSNGIE5 Sep 21, 2012
  • @williamalden Interesting curiosity, but they don’t have much musical talent Sep 21, 2012
  • @ianbremmer Not too surprising, U would probably get the same result in Vallejo, Stockton, Jefferson County, AL, & other bankrupt places $$ Sep 21, 2012
  • “I hope they kill this one while it is little. Residential Rental Income ABS sounds like a disaster.” ? David_Merkel http://t.co/srTbHgyT $$ Sep 20, 2012
  • @e_d_sanders That wouldn’t surprise me, to me it is funny how we end up overriding law with administrative action Sep 20, 2012
  • “I’ve owned $CVX for a long time for clients. $BRKB is interesting; I really like what Buffett does?” ? David_Merkel http://t.co/l1GZGm3J $$ Sep 20, 2012
  • . @hassankhan Sometimes there is research, sometimes it is little better than a guess. And yes, new insurance biz has sometimes lost $$ Sep 20, 2012
  • . @hassankhan New coverages start with a guess. As claims emerge, pricing & terms adjust to reflect claim incidence & severity $$ Sep 20, 2012
  • @Fullcarry People want to lock in a smaller loss Sep 20, 2012
  • @dcarpenter14 Good point, thanks for making it Sep 19, 2012
  • @XQuickFixX investors that buy & hoard 4 DB plans, ETFs, commodity funds, etc, even the SPR, that speculation does affect prices Sep 19, 2012
  • @XQuickFixX Besides, prices r set at the margin — what it costs to get the next barrel. Last point, if speculators includes the commodity + Sep 19, 2012
  • @XQuickFixX But the evidence in the article is hearsay. The extraction cost of $11/bbl looks really low. It has 2b higher than that. Sep 19, 2012
  • @XQuickFixX 2 thoughts: 1) my reform for derivative markets is hedgers must initiate all trades. Speculators can’t trade with each other Sep 19, 2012
  • I don’t believe the oil market is manipulated. It’s too big;keep the bid price too high, they will sell you a lot of ? http://t.co/oKOTecFE Sep 19, 2012
  • @izakaminska Thanks, Izabella. My best to all at FT Alphaville. $$ Sep 19, 2012
  • @izakaminska I admire you all at ft alpha, you write about big things that many of us miss; I would work with u all if u wanted me $$ Sep 19, 2012
  • RE: Average people can’t invest well & can’t get longevity insurance at a fair price. DB plans r better than DC plans? http://t.co/ClMRmrUH Sep 18, 2012
  • RE: Sorry, public pensions are not included; their rules are weaker than this. Also, no PBGC for muni DB plans. $$ http://t.co/PHnzUlXi Sep 18, 2012
  • @moorehn The eyewitness accounts of the life of Jesus would have noted a wife; Peter had 1. http://t.co/TeIiDodQ Definitive scholarly book Sep 18, 2012
  • “I disagree, mostly. Value is often its own catalyst. People ignore many low P/E stocks just b/c?” ? David_Merkel http://t.co/spWdEhSn $$ Sep 18, 2012
  • @LDrogen low likelihood, high severity Sep 18, 2012
  • “”How long until a producer comes in yelling, ?wait?wait, he?s just a loud-mouth with a blog?” ? David_Merkel http://t.co/ww2r59BZ $$ Sep 18, 2012
  • @rcwhalen We had 3 & adopted 5. Used zone defense metaphor 2 explain it 2 guys. W/a zone u r rules-based; need more rules w/more kids. $$ Sep 18, 2012
  • @groditi The only thing that gives me pause is that my old friends from my bond manager days r still constructive on HY http://t.co/egOXLBWo Sep 18, 2012
  • “Exactly. I read the same piece, and for some reason I didn’t comment on their lack of understanding.” http://t.co/W2n3pwcQ $$ Sep 18, 2012
  • Exactly. Every asset they inflate, inflates liabilities for those who fund them.? Commodities rise due 2 financial re? http://t.co/0HL1L9cq Sep 18, 2012
  • @TheStalwart Pie charts provide the least information of any type of graph, I think that’s why the chart nerds like them less $$ Sep 18, 2012
  • @MikeLanter Yes, THE ELEPHANT! Sep 16, 2012
  • “Well said. My but the Fed has become an elephant in the agency RMBS market” ? David_Merkel http://t.co/FWZ5ngNu $$ Sep 16, 2012

?

Retweets

  • If we don’t get stagflation RT @OVVOFinancial @Vermeer1097 Martingale works for Fed playing w/o table limits and unlimited balance sheet. $$ Sep 21, 2012
  • RT @SullyCNBC: Instead of being angry at individuals for paying the least amount in taxes they legally owe..be angry at Congress for our … Sep 21, 2012
  • Double down, BABY!! $$ RT @Vermeer1097: @AlephBlog Bubbles Bernank simply using a very old betting system: the Martingale. Sep 21, 2012
  • You can either think binary or not $$ RT @daveinbawlmer: @AlephBlog @ritholtz a sort of binary way of thinking about being binary Sep 21, 2012
  • There r only 10 types of people in the world, those get binary & the rest RT @ritholtz: Either you believe the world is binary or you don’t Sep 21, 2012
  • RT @researchpuzzler: RT @DDInvesting: An Open Letter to CFOs Across America http://t.co/78ubGzqL ~ must read, for investors as well as C … Sep 19, 2012
  • RT @prchovanec: When will Chinese authorities figure out that developing new financing vehicles does not change underlying asset quality? $$ Sep 19, 2012
  • Bigtime $$ RT @historysquared: Chinese banks are ?the nexus for? all of this credit-driven investment.” ~ Jim Chanos Sep 18, 2012
  • What reputation? Perpetuating a bad idea $$ RT @credittrader: Tuesday Humor – *JUNCKER SAYS GREECE EURO EXIT WOULD HARM EURO REPUTATION Sep 18, 2012
  • +1 RT @ReformedBroker: ?When we encounter pain, we are at an important juncture in our decision-making process.? http://t.co/x8hjUYB4 $$ Sep 18, 2012
  • RT @groditi: @AlephBlog i’d much rather hold some decent stocks w/ good FCF/Earnings yields and an overweight cash position the the same … Sep 18, 2012
  • Well-stated $$ RT @felixsalmon: #Romneyshambles: the conservative take is no less damning. http://t.co/H6H3etqh Sep 18, 2012
  • You said it $$ RT @BoydRoddy: You get the feeling that @John_Hempton is having fun with $FMCN a la a Cat and a stalked mouse? Yeah, me too. Sep 18, 2012
  • You betcha. BTW, @soberlook has posted http://t.co/pfSscLH1 good stuff RT @merrillmatter: not buying any MBS here $$ Sep 16, 2012

 

Neoclassical vs Austrian Economics

Neoclassical vs Austrian Economics

Posted on by David Merkel

Before I start, I want to say that I have not read Mises, Hayek or Rothbard.? I arrived at these conclusions on my own.? I also want to quote Buffett:

?It is better to be approximately right, than precisely wrong.?

Applying math to economics has been a loser.? Who has a consistently good macroeconomic model?? No one that I know.? Estimates of future GDP growth and inflation are regularly wrong, and no one calls turning points well.

Even microeconomic models are bad shape; most of the major hypotheses get rejected when doing general equilibrium tests.

Why?? Because capitalistic economies are more dynamic than mathematical models can mirror.? Live with the volatility, and don’t try to model it.? We face the same in the asset markets, behavior is not predictable.

Austrian economics understands the boom-bust cycle.? Neoclassical economics assumes we move to an equilibrium.? Have you ever lived in an equilibrium?!? There is never an equilibrium, or it is always unstable, and that is the beauty of Austrian economics.? The lack of an equilibrium means the system is always adjusting it does not rest.

Why do neoclassical economists assume equilibrium?? To make their stupid math work.? It is the same for guys in finance.? Why do they assume normality?? To make their stupid math work.? The world is complex, but the economists assume that it is not complex in order to make their models work.

Bias

There is a bias that exists below the surface of all macroeconomic commentary.? Do we look at the income statement, or do we look at the balance sheet?? Neoclassical economists mostly look at the income statement.? Austrian economists look at the balance sheet.? (Neoclassical economists are friends with growth investors, Austrians are friends of value investors.)

Think of the “brick through the window” fallacy.? On the Neoclassical version of GDP, a brick through the window raises GDP.? The Austrians are smarter, and realize that the change in aggregate net wealth is negative.

Neoclassical economics believed debt levels were neutral and were proven wrong in the recent crisis.? They did not look at the balance sheet.

Neoclassical economists, who have dominated the Fed for over 40 years, drove us into a huge inflation, which Volcker choked, and then Greenspan & Bernanke drove us into a liquidity trap by refusing to let recessions eliminate bad debt, creating the “great moderation,” which is now known as a sham.

What You Can’t Quantify Well

Quantitative economics has not improved understanding.? Ben Bernanke flies blind but claims that he sees; the Fed has been a lousy predictor of economic outcomes, despite the legion of academic economists they employ.? There are no economists that have consistently forecast the economy well.

That’s why I don’t agree with those that criticize Austrian economics for avoiding quantifying their theories.? Economics is not a science; it does not quantify well, at least in detail.

Economics should be primarily an ethical discipline.? The government is a referee rather than an overlord.? The government should assure equality of opportunity rather than equality of result.

It’s not as if the government can use its “policy levers” to create any degree of lasting prosperity.? Prosperity lies within the control of individuals who apply their acumen to the situation, and come up with creative ways of meeting human needs.

Closing

Thus, I don’t have much sympathy for those that reject Austrian economics because we don’t have a mathematical means of expressing it.? Paraphrasing the Buffett quote, “I would rather be approximately right than precisely wrong.”? There are many things that I don’t have an exact economic model for that I know a decent amount about.? Qualitative knowledge is valuable, and should not be disrespected by those that do not have a better model, such as the broken model of the neoclassical economists.

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Financial Markets

 

  • State court ruling deals blow to U.S. bank mortgage system http://t.co/QilYZQJZ Washington State Supreme court allows MERS 2b sued &more $$ Sep 14, 2012
  • Partial explanation for flash crash and HFT http://t.co/ylpBj6Bm http://t.co/ABsvytw9 AP http://t.co/7xH09jMn http://t.co/hyznU44r $$ Sep 14, 2012
  • Violation: Prop Feeds #1 and #2 sent data to proprietary customers before NYSE sent data to the public feed. http://t.co/skh2CaUW ouch $$ Sep 14, 2012
  • Equity Firms Like Bain Are Depicted as Colluding http://t.co/8KMIo1xy This could be significant, but some of the legal issues r squishy $$ Sep 14, 2012
  • A Conversation with Ray Dalio http://t.co/clEaTy9C Full transcript, which I like, because watching video is slow $$ Sep 14, 2012
  • Jeff Gundlach’s Eye-Opening Presentation ‘Mirror, Mirror On The Wall’ http://t.co/QE6PHUoP Be prepared for lots of informative charts $$ Sep 13, 2012
  • Fink Belies Being Boring Telling Customers to Buy Stocks http://t.co/MYdrW95h A feature article on $BLK and Larry Fink; next Tsy Sec? $$ Sep 13, 2012
  • Oddly, what Dalio is saying here is very close to Harry Browne’s idea of the Permanent Portfolio. $$ http://t.co/C0x37B3Y Sep 13, 2012
  • Mortgage REITs’ leverage poses significant risks to the overall mortgage market http://t.co/Ifje6AxB Public markets r mismatched/limited $$ Sep 12, 2012
  • Bill Gross Sees Higher Long-Term Yields Amid Reflation http://t.co/eYPeRZlt If that were true, rates would be high already. $$ #youlose Sep 12, 2012
  • Is BlackRock Kissing Individual Bonds Goodbye? http://t.co/s2RywmL3 Mmmm…. converting transaction revenues into an annuity… yes… $$ Sep 12, 2012
  • 361 Capital Weekly Research Briefing http://t.co/nd6akDbW Interesting briefing that makes a mostly bullish case $$ Sep 11, 2012
  • Is Everything We Know About Stock/Bond Allocations Wrong? http://t.co/85D2kUik Questions the wisdom of risk parity for asset allocation $$ Sep 11, 2012
  • Want to Buy a Private Stock? http://t.co/E3WojVi2 Listen to @jasonzweigwsj Do not buy private equity; you don’t have the expertise. $$ Sep 09, 2012

Federal Reserve

 

  • New round of quantitative easing biggest yet? http://t.co/ANA3MX2y Potentially. Problems will come as Fed corners low-rate GSE Resdl MBS $$ Sep 14, 2012
  • FOMC Central Tendencies: Target Fed Funds Rate at Year-End 2012-5, long-run 0.26 0.38 0.80 1.72 4.07 Chg: -0.04 -0.12 -0.30 NA -0.13 $$ Sep 13, 2012
  • FOMC Central Tendencies: Appropriate Timing of Policy Firming extends 7.6 months from June to 2.8 years Sep 13, 2012
  • FOMC Central Tendencies 2012-2015, long-run PCE inf 1.75 1.84 1.82 1.97 2.00 PCE inf 2012-2014 long-run +0.27 +0.08 +0.05 0.00 $$ Sep 13, 2012
  • FOMC Central Tendencies 2012-2015, long-run Unemp 8.11 7.70 6.98 6.38 5.60 Uemp change 2012-2014 long-run +0.01-0.01-0.30 0.00 $$ Sep 13, 2012
  • FOMC Central Tendencies 2012-2015, long-run GDP 1.84 2.78 3.4 3.39 2.44 GDP change 2012-2014 long-run -0.29 +0.210 +0.12, 0.00 $$ Sep 13, 2012
  • Budeeah, budeeah, budeeah, That’s all folks! Sep 13, 2012
  • Something happened around 2:30, but what? Sep 13, 2012
  • Press seems feistier than usual at the Bernanke Presser $$ Sep 13, 2012
  • Wow, a 2% move in gold qualifies as “explodes?” Wow #verbinflation http://t.co/8hodDxcp Sep 13, 2012
  • Extends low FF to mid-2015, ~9 months Sep 13, 2012
  • Fed’s web server is paralyzed, overwhelmed Sep 13, 2012
  • Ding! It’s SHOWTIME, Ben! $$ Sep 13, 2012
  • Bernanke Proves Like No Other Fed Chairman on Joblessness http://t.co/qHWtJv7W Bernanke imagines that he is fighting recession $$ Sep 12, 2012
  • Fed Stuck at Zero Into 2015 Seen in Swaps, QE Odds Reach 99% http://t.co/IM6HBDQR Given that fixed income mkts anticipate: no QE effect $$ Sep 10, 2012
  • An idea better kept in reserve http://t.co/ujKFy1Vc When u r playing around near the zero bound, all sorts crazy things could happen $$ Sep 10, 2012

 

US Politics and Economics

 

  • US Consumer Price Index Increases by Most Since 2009 http://t.co/6u2Di5r4 Given the unlimited QE, hard to see why prices should be weak $$ Sep 14, 2012
  • Airbrushed History and Dusted-Off Promises http://t.co/gMetXbgi Obama promised much more in 2008-9 than he is owning up to now. $$ Sep 13, 2012
  • Household Income Sinks to ’95 Level http://t.co/LA6pnEC3 R U better off than 4 years ago? Mean, yes. Median, no. $$ Sep 13, 2012
  • In Chicago, the Teachers’ Last Stand http://t.co/3uAcUJZT Bad news for the teachers, given underfunded DB plan, $$ struggles will worsen Sep 13, 2012
  • This is Illinois after all…corruption & bad mgmt r normal. Teachers fear 4 their unfunded pensions & high $$ jobs. http://t.co/KVWIURuV Sep 13, 2012
  • About Those Policies That Got Us Into This Mess http://t.co/cUDmsUJy Interesting: many of the critical laws were signed by Democrats $$ Sep 13, 2012
  • White House pushes back on claims from Woodward book http://t.co/IPpUUGXg The fiscal crisis was Obama’s fault as well as Congress’ fault $$ Sep 12, 2012
  • Strike Puts Spotlight on Teacher Evaluation, Pay http://t.co/MJ0A4pCt Break the union and hire non-union teachers who r motivated $$ Sep 12, 2012
  • Stagnant Incomes Signal Restraint in Spending by U.S. Consumers http://t.co/uiBxYBzM Y b aggressive spending when policy is uncertain $$ Sep 10, 2012
  • Why Health Care Matters and the Current Debt Does Not http://t.co/yw4MLv6o Because the healthcare unfunded liabilities r a LOT BIGGER $$ Sep 10, 2012

 

Other

 

  • #FF @TALENTEDBLONDE @prieur @rcwhalen @AmyResnick @AnnieLowrey @brucekrasting @derekhernquist @fundmyfund @ftalpha @BloombergNews $$ Sep 14, 2012
  • Children of Single Parents Much More Likely in Poverty http://t.co/PbaJuoGU “Dog Bites Man” Two parents r normally stronger than one $$ Sep 13, 2012
  • The Manhattan Project to End Fad Diets http://t.co/NvkkihYt Sounds promising, but there is 2 much $$ & wishful thinking w/fad diets Sep 13, 2012
  • Michael Pettis publishes! It’s a great night! $$ Sep 13, 2012
  • Charities Deceive Donors Unaware Money Goes to a Telemarketer http://t.co/vKXjfU7K Don’t ever give money to a charity over the phone $$ Sep 12, 2012
  • Medics Being All They Can Be Find Civilian Job Barriers http://t.co/p7gZbgNT Vets have to have a way to transist to civilian work $$ Sep 12, 2012
  • Is College a Lousy Investment? http://t.co/GoKcgrLB It depends. If u r in the top 20%, no. If u r in next 20%, maybe. Otherwise, yes $$ Sep 12, 2012
  • 13 Tools To Tame Social Media Overload http://t.co/UYXZUMAt A variety of programs that can stiffen your resolve to avoid wasting time $$ Sep 11, 2012
  • Why the New Marketing-Driven Corporate Research Lab Needs the CIO http://t.co/d8wWCDJc Research, Development & Marketing belong together Sep 10, 2012
  • Letting Babies Cry a Bit Is OK http://t.co/UmqwwLbl Babies stop crying (leave aside pain/sickness) when crying does not get rewarded $$ Sep 10, 2012

 

Energy

 

  • Wind is intermittent, advances in batteries that can store energy are also needed. http://t.co/eBsqqW5y Sep 13, 2012
  • Asian Water Scarcity Risked as Coal-Fired Power Embraced http://t.co/C4QQXAQm The need for water is forcing tough choices in India $$ Sep 11, 2012
  • Gamechanging Natural Gas Tech Gets Green Light http://t.co/tiI2hiu2 Methane hydrates r recoverable; triples existing oil & NG reserves $$ Sep 10, 2012
  • Saudi Arabia Concerned About Rising Crude Prices http://t.co/f3eUmId0 High quality problem, but how much can the Saudis a4d 2cut back $$ Sep 10, 2012

 

Rest of the World

 

  • Swiss Farmers Clash With Traders as Bubble Builds in Town of Zug http://t.co/EjPUX0Pa Another report from the Bubble caused by the SNB $$ Sep 13, 2012
  • Skip College Is Top Advice for World-Beating Koreans http://t.co/YQ9DKAZO Any strategy to improve your lot can be overused, even college $$ Sep 12, 2012
  • Less-Rosy Reality http://t.co/HfidgmGM This current round of euro-optimism will wear badly with time. Cash flows will dictate reality $$ Sep 11, 2012
  • Can Asia avoid the middle-income trap? http://t.co/PLB8ER7i How technology is killing the Asian growth miracle http://t.co/ue15U4sd $$ Sep 10, 2012
  • Hollande Challenges Unions on Labor Law as Stagnation Sets In http://t.co/xRBJdqdt Pretty tough to start fighting w/base w/low poll #s $$ Sep 10, 2012
  • Why Merkel Wants To Keep Greece in Euro Zone http://t.co/b3cTiHfq It is cheaper in the short run than bailing out the banks $$ Sep 10, 2012

 

Companies

 

  • Why Ruane Cunniff & Weitz Funds Like Valeant Pharmaceuticals (VRX) http://t.co/QBLd8SGV Combination of Pharma co, & asset-stripper $$ Sep 14, 2012
  • Andrew Ross Sorkin?s Bad Math on AIG http://t.co/pHdsYWRV Notes tax favors $AIG received, could have mentioned forgiven bailout terms $$ Sep 13, 2012
  • Legg Mason CEO to Leave Amid Pressure http://t.co/PB4ZxKCj $LM was better in the past, when they did not rely on fund mgmt as much $$ Sep 12, 2012
  • David Merkel: Why You Will Never Be Buffett http://t.co/iPfn9Gxo @reformedbroker features two of my articles on Buffett. Thanks, Josh $$ Sep 12, 2012
  • Ship Magnate Uses Gut in $11 Billion Bet Worst Since ?70s Ending http://t.co/f5BGyDoZ Long article on the gamblin’ head of $FRO & $SDRL $$ Sep 10, 2012

 

On Bailouts

 

  • Two notes on the bailouts: first, those saying the US Govt made $$ on the bailouts are not counting in Fannie & Freddie Sep 11, 2012
  • Second: they aren’t counting the cost of capital: had they invested $$ at the same time in a 50/50 mix stocks/bonds would’ve made much more Sep 11, 2012
  • So, aside from encouraging future moral hazard, the bailouts lost $$. Strictly on a moral basis, the govt should not play favorites. Sep 11, 2012

 

China

 

  • The Communist Party?s Big Problem? It?s Not Bo Xilai http://t.co/BXRshBNQ Publication of a long, critical commentary of CCP direction $$ Sep 13, 2012
  • Shadow Bankers Vanishing Leave China Victims Seeing Scams http://t.co/4RmbjG8d When bankers flee, go B/K, commit suicide: not good sign $$ Sep 13, 2012
  • China’s Revolution Risk http://t.co/lzs5k5ll One has to remember that not all risks are simple and economically rational. $$ Sep 12, 2012

 

Replies

  • @BarbarianCap @derekhernquist Thanks much. Don’t know what to say. 🙂 $$ Sep 15, 2012
  • @derekhernquist You’re welcome, Derek. I appreciate following you, & you following me. Why did I start the blog? To give something back $$ Sep 15, 2012
  • @moorehn Yeah, I know. I just Googled a few phrases from your show to see what would come up. Sorry that that did. Sep 15, 2012
  • @moorehn Rush Limbaugh also used “It’s like a sugar high.” 4 QE yesterday on his radio show http://t.co/BhS48hxN No, I don’t listen 2 him $$ Sep 15, 2012
  • @ritholtz Yes. First time but there are other cases in the works $$ Sep 14, 2012
  • @LaMonicaBuzz Definitely the latter. Full disclosure: long $SPLS $$ Sep 13, 2012
  • @JamesGRickards Confidence comes from a strong balance sheet & sustainable economic policies Sep 13, 2012
  • @XQuickFixX That figure is for average over a lifetime. Sep 13, 2012
  • @XQuickFixX “average BA college degree makes ($52,200)” Link? Sounds too high Sep 13, 2012
  • @wsquared58 Good for you Sep 13, 2012
  • @TheStalwart Cool, well, we will watch and see to the EOD Sep 13, 2012
  • @TheStalwart Are you forecasting the immediate move, say, 15 minutes, or to the end of the day? Sep 13, 2012
  • . @Nonrelatedsense Browne’s system is simple, like a VW bug. Bridgewater is like a Maserati in comparison. Both are elegant AA ideas $$ Sep 13, 2012
  • @waughkd I have been to SD once in my life; my brother lived on an Indian reservation there 4 years. The physics of wind power is tough $$ Sep 13, 2012
  • @XQuickFixX It used to be that that earned below median incomes; now they earn above median; it’s the pensions that r really high Sep 13, 2012
  • @munilass Thanks for tweeting that; I have had a lifelong interest in prime numbers, though the math here is beyond me. Sep 13, 2012
  • @GaelicTorus I’ve debated that; I sometimes do negative book reviews. More often it doesn’t get a review. Sep 13, 2012
  • @GaelicTorus Book isn’t out yet, not seeking a copy. Sometimes I get books I did not request, e.g., Hank Paulson’s book & didn’t review $$ Sep 13, 2012
  • @GaelicTorus former employee of $GS who left, purportedly because his ideals were shattered as $GS changed 2b more mercenary $$ Sep 13, 2012
  • @JacobWolinsky thanks 4 that data point. traded away most of my commodity stocks a while ago. Did not want to be a hog. $$ Sep 13, 2012
  • @JacobWolinsky If China’s growth materially reduces, many commodities will have a hard time. Sep 13, 2012
  • @groditi I could convert it to a PDF and send it to you just e-mail me at david.merkel@gmail.com Sep 13, 2012
  • Commented on StockTwits: I never use stops. Never. I just buy, hold, and sell after a few years. I you choose well,… http://t.co/HXgjGxic Sep 12, 2012
  • @TheStalwart Car chases go on a lot longer because other cars pull over for the police $$ Sep 12, 2012
  • @MarkDampier I’m skeptical too… $BLK is big enough to be able to get good executions for clients. They shouldn’t have to use ETFs $$ Sep 12, 2012
  • @BradErvin1 You can’t do that. The only thing you can rely on is that glutted sectors will always return less than non-glutted sectors. $$ Sep 12, 2012
  • .@BradErvin1 The crisis came from capital misallocation. The bailouts tossed more capital into sectors that were glutted already. Not C-P $$ Sep 11, 2012
  • @Oval54 comes back w/interest to special interests, not to the average person Sep 11, 2012
  • @EddyElfenbein Can’t be any other way. My first statistics professor told us on on day 1: “Statistics is a meeean profession.” $$ #malehumor Sep 11, 2012
  • @BoydRoddy @finemrespice Funny thing is that Federal Reserve did not talk publicly about the life cos, but sys risk during $AIG crisis $$ Sep 11, 2012
  • @finemrespice @BoydRoddy Agreed, it wasn’t the sole reason. Systemic effects of AIGFP, and do you hae a link on the FRC Basel issue? Sep 11, 2012
  • @finemrespice @BoydRoddy AIG’s Domestic Life companies lost all of their surplus when the AAA subprime RMBS underlying sec lending failed $$ Sep 11, 2012
  • @cabaum1 Quirk of Twitter, no #FM, #FT, #FW, #FTh, #FSa, or #FSu, only #FF for “Follow Friday,” & people typically only do #FF on Friday Sep 10, 2012

 

Retweets

 

  • US Govt outsources a lot RT @paulvieira:Joe Biden Calls Outsourcing “Not Bad If You’re Running A Company” http://t.co/vB42Feia via @buzzfeed Sep 14, 2012
  • RE: @bloombergview Bernanke should do the right thing: admit that he is wrong, and resign. http://t.co/1R5mxQw9 Sep 13, 2012
  • RE: @bloombergview Doing the same thing again and again, and expecting a different result.? You back an insane moneta? http://t.co/73aZFlFI Sep 13, 2012
  • I’m in the stagflation camp too $$ RT @BubblesandBusts: @alephblog I’ll take the under on GDP and over on unemployment and inflation Sep 13, 2012
  • RT @KeithMcCullough: Maybe one of the saddest days in American economic history; history wont forget this Sep 13, 2012
  • RT @credittrader: THIS!! RT @PragCapitalist: Bernanke basically just described the theory that asset bubbles are good for the economy…. $$ Sep 13, 2012
  • I tend to agree $$ RT @Nonrelatedsense:I think any allocation model faces a challenge today. Those two face more than they have in the past. Sep 13, 2012
  • Creation of credit has never brought prosperity. U r deluded $$ RT @BloombergView: Bernanke, You have no excuse | http://t.co/KwoPTjCJ Sep 13, 2012
  • As my Dad would say, for “socks & underwear” too $$ RT @pdacosta: Fed Chairman Bernanke spotted at Wal-Mart. Shopping for kitchen sink. Sep 13, 2012
  • Best since Paulson, including Hank $$ RT @pegobry: Geithner: best Treasury Sec in decades? Sep 12, 2012
  • RT @wesbury: It’s the spending. It’s the spending. It’s the spending. It’s the spending. It’s the spending. It’s the spending. It’s the … Sep 12, 2012
  • Performance art, yes $$ RT @TheStalwart: I think I might like to attend this conference, merely as performance art. http://t.co/PO6fzBp6 Sep 11, 2012
  • RT @dwotapka: RT @AskMiles: My mother used to say I’d get bored with pizza if I had it every day. My mother was wrong. Sep 11, 2012
  • At least those that cite the labor force participation rate $$ RT @TheStalwart: U-6ers are the truthers of the economics profession. Sep 11, 2012
  • RE: @bloombergview Same is true of Obama.? We face gridlock regardless of who gets elected. http://t.co/jGXTXoLI Sep 11, 2012
  • RT @annasacca: “Anyone wanting to learn about private equity would benefit from The New Tycoons by @jasonkellynews” http://t.co/xaF7HhLf $$ Sep 11, 2012
  • RT @BoydRoddy: Sole reason for AIG rescue: Sec.Lending undisclosed scheme under Neuger imperiled largest Life co’s in the world. No Life … Sep 11, 2012
  • As a happy user for around 2 years, I salute you; to my readers, look into getting free Opendns. $$ RT @opendns: Thanks for the RT! Sep 10, 2012
  • RT @opendns: We’re hearing reports that OpenDNS #SmartCache is helping OpenDNS users get to sites otherwise down during @godaddy #outage … Sep 10, 2012
Redacted Version of the September 2012 FOMC Statement

Redacted Version of the September 2012 FOMC Statement

Posted on by David Merkel
August 2012 September 2012 Comments
Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Unchanged GDP view.
Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Growth in employment has been slow, and the unemployment rate remains elevated. No real change.
Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Household spending has continued to advance, but growth in business fixed investment appears to have slowed.? The housing sector has shown some further signs of improvement, albeit from a depressed level. ? Shades down business investment.? Shades up housing.
Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable. No change in? their view of inflation. TIPS are showing rising inflation expectations since the last meeting. (5y forward 5y inflation implied from TIPS.)
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. No change. Why bother saying this?
The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Monetary policy omnipotent.
Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. No change.
The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective. Clarifies and tightens its policy objective. CPI is at 1.4% now, yoy, so that is quite a statement.
The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.? The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.? These actions, which together will increase the Committee?s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative. Commits to an open-ended purchase of low-coupon agency residential MBS.? Wonder how long it will take them to saturate that market?

Also continues the twist program in Treasury bonds.

Will reinvest maturing MBS in more MBS, and agencies in agencies.

Does not mention how the twist will affect those that have to fund long-dated liabilities.
The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation The Committee will closely monitor incoming information on economic and financial developments in coming months. Moved up from below, no real change
as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. Conditions additional policy changes on the labor market.
  In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases. The FOMC promises what it cannot know or deliver.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. Promises that they won?t change until the economy strengthens.? Good luck with that.
In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015. Extends low Fed funds out by around five months versus the last FOMC statement.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. No change
Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted. No change. Only semi-sane person in the room.

?

Comments

  • The FOMC pulls out all of the stops.? When this policy doesn?t work, what will they do?
  • The FOMC commits to conditional but potentially unlimited agency residential mortgage-backed securities [MBS] purchases, continues and extends the twist program, and lengthens the period of FOMC Fed funds policy accommodation.
  • In my opinion, I don?t think holding down longer-term rates on the highest-quality debt will have any impact on lower quality debts, which is where most of the economy finances itself.
  • Also, the investment in Agency MBS should have limited impact because so many owners are inverted, or ineligible for financing backed by the GSEs, and implicitly the government, even with the recently announced refinancing changes.
  • The key variables on Fed Policy are capacity utilization, unemployment, inflation trends, and inflation expectations.? As a result, the FOMC ain?t moving rates up, absent increases in employment, or a US Dollar crisis.? Labor employment is the key metric.
  • GDP growth is not improving much if at all, and the unemployment rate improvement comes more from discouraged workers.? Inflation has moderated, but whether it will stay that way is another question.

A Statement to Dr. Bernanke:

More debt will not get us out of this crisis.? The Great Depression ended when enough debts were compromised, paid off, or cancelled, which from my study is 1941, before WW two started.

Your policies further aid the growth of the budget deficit, and encourage malinvestment in housing and banking, two things in a high degree of oversupply.? The investments in MBS only help solvent borrowers on the low end of housing, who don?t really need the help.? Holding down longer-term rates on the highest-quality debt does not have any impact on lower quality debts, which is where most of the economy finances itself.

The problems with unemployment are structural, not cyclical.? Labor force participation rates continue to decline.? There is greater labor competition around the world, forcing down wages on the low end.? There is nothing that monetary policy can do to change this.? You can create stagflation through your policies, but not prosperity.

When inflation does arrive, the FOMC is going to find it very hard to raise Fed Funds or shrink its balance sheet.? The banks will not react well as you try to shrink, and the long rates that you have held down will react violently.

You haven?t thought through all of the ?second order? effects of your policy.? Even the ?first order? effects, which favor the rich over the poor, seem to elude you.? Assets rise, helping the rich.? Interest rates fall, helping the rich who can borrow.? Commodity prices rise, harming the poor.

Insanity is doing the same thing over and over, and expecting a different result.? When will you realize that the policies of the Fed aren?t helping, and need to be abandoned?

Carrying Capacity

Carrying Capacity

Posted on by David Merkel

I am usually dubious about the government trying to encourage certain behaviors.? Examples:

  • Buy a house
  • Go to college
  • Manufacture goods
  • Any number of special interest earmarks
  • “Saving” through IRAs and other tax-deferred vehicles

I like to think that most people know well enough to look out for themselves.? They know well enough whether they can afford and need a house.? They know whether they are college material or not.

But in both of those cases, the government provided incentives to invest in houses and college educations, and managed to push up home ownership for a time, and college students as well.

The problem is that not everyone wants to or it capable of taking on the fixed commitment of buying a home.? Not everyone is bright enough or motivated enough to go to college, and the effect of college on wisdom and job prospects is is dubious if you are not a top quartile high school student.

Better to be a welder than a Anthropology BA.? Better to be a plumber than a Sociology BA.? Better to be an electrician than a Humanities BA.? Better to rent than own a home that you can’t afford.

Governments imagine that they can shape outcomes, and in the short-run, they can.? In the long-run, the real productivity of the economy matters, and only those that can make it without government help will make it.? Whatever government policy may try to achieve, eventually the economy reverts to what would happen naturally without incentives.? There is a natural carrying capacity for most activities, and efforts to change that usually fail.

Politicians err greatly, both Democrats and Republicans, by promising that they can create a better economy.? Please, leave the economy alone, and it will do better.? Regulate the banks tightly, because their borrowing short and lending long causes most financial crises, but in general, the government errs when it encourages us via the tax code to do anything.? Eliminate preferences, simplify the tax code, reduce the ability to defer income.

We will do better with humble politicians and bureaucrats who realize that there is not much that they can do, and so the size of government reduces.

Simple government and taxes causes companies to focus on operations, not tax savings.? Same for individuals; let them focus on productivity, not tax angles.

Pushing an economy beyond its natural limits (carrying capacity) by government intervention does not work.? Limited government works, and people have to live with the fact that the government can’t solve every problem.? Woe to those where the government thinks it can do so.

Best of the Aleph Blog, Part 18

Best of the Aleph Blog, Part 18

Posted on by David Merkel

These articles appeared between May and July 2011:

Most People are not Better off Buying Common Stocks on their own

versus

Why Amateurs Should Invest in Common Stocks

Yes, I wrote them both, but they complement each other.? Yes, most average people get skinned investing in common stocks, but if you apply yourself assiduously to investing, it will improve your performance in other jobs, by broadening your skill set.

Impossible Dream, Part 2

Impossible Dream Project, Part 1

The latter of (part 1) these was my highest day and month for access of my blog.? I came close to eclipsing the monthly total last month, but missed by 2%.? These pieces take up asset allocation via valuation, and momentum.

Learning Leadership

A story of how Roy and I disobeyed orders a little, and created a lot of growth for the company that we served.? Personally, I think this is a great story… I never created more value than when I worked for Provident Mutual.

On Longevity Derivatives

I like to think that I am an intelligent skeptic on derivatives; in this case credit risk fights any real hedging.

Segmenting to Make Better Decisions

The smaller the range of choices is, the better people do in choosing.? One way to facilitate that is to break down decision making into a series of choices with each having few options.

The Rules, Part XXI

All assets represent future goods.? The prices of assets represent the trade-off between present goods and assets.

The Rules, Part XXII

Rapid money supply growth with no consumer price inflation can only really occur within the confines of an asset price bubble, or else, where does the money go?? Interest rates are low at such a time because of the incredible liquidity, and complacency of lenders that they will get an equal amount of purchasing power back.? Perhaps another possibility is when a country?s currency is being used more and more as a shadow currency, like the US in the Third World.? But even that will come home someday.

Learning to Like Lumpiness

This is probably one of the most important articles I have written, because investment returns are lumpy, and we need to learn to live with it.? For those of us that are smart, we need to take advantage of it.

What is Liquidity (V)

Liquidity cannot be created, but it can be redirected.

Got Cash?

Cash is valuable even when interest rates are low.? Cash is flexibility and optionality.

Enduring Ponzi

Madoff’s Ponzi scheme lasted so long because it raked off so little.

The Costs of Illiquidity

On the tradeoff of liquidity in order to get yield.

Silent as Night

It also taught me a lesson.? When fees are deducted daily, no one notices.

?Is He Economically Rational??

Now after all of this, it?s not so much a question of rationality but ethics.? Who will do the right thing for the one he ultimately serves?? Working for those people is a joy, and is beneficial to those that own. Doing right does well for many.

Downgrade Jitters

On why credit ratings are opinions, and not facts.

Where to Hide?

How to preserve purchasing power, even when it is difficult.

The Costs of Illiquidity ? II

Don’t buy REITs that are not publicly traded.

 

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Eurozone

 

  • ECB Collateral Moves Reopen ?Soup Kitchen? for Struggling Banks http://t.co/CMMkeby9 Euros available in exchange 4 marginal collateral $$ Sep 07, 2012
  • Jobless Greeks Resolved to Work Clean Toilets in Sweden http://t.co/EqGuottV Really a sad tale; another way of saying EZone has failed $$ Sep 07, 2012
  • Euro: Looks like a duck, quacks like a duck http://t.co/R3y7uG5J Axel Merk argues that current Eurozone troubles will create US Europe $$ Sep 07, 2012
  • Draghi Says Officials Agree on ECB Unlimited Bond-Buying http://t.co/Cyn0tu9O The conditionality will eventually render it ineffective $$ Sep 06, 2012
  • Fears Rising, Spaniards Pull Out Their Cash and Get Out of Spain http://t.co/EMT40EQK When times get tough, people leave. More in Spain $$ Sep 07, 2012
  • Perhaps the Irish economy is rebounding.? Maybe the banks are next? $$ http://t.co/fN5Cyfj4 Sep 05, 2012
  • Two Tears for Two-Tiers http://t.co/YuLV0vnN Will Mario Draghi really create an expensive market for <3yr Spanish & Italian debt? $$ Sep 05, 2012
  • ECB bond-buying would not breach rules-Draghi http://t.co/9iaSdGnn Of course not pooky. Buying the short debt will draw u2 long debt l8r $$ Sep 04, 2012

 

Politics

 

  • California Treasurer Backs Law to Ban Costly Long-Term Bo [sic] http://t.co/P5U2f7DC Capital Appreciation Bonds are expensive 2 issuers $$ Sep 07, 2012
  • We’re Not Out Of Money http://t.co/FKDSbBAM There may not be an economic limit on printing $$ but a political limit when inflation arrives Sep 05, 2012
  • Top Bank Lawyer?s EMails Show Washington?s Inside Game http://t.co/4sSYxs4n Former SEC Commissioner Annette Nazareth uses her influence $$ Sep 05, 2012
  • Suits Challenge Classrooms That Segregate Boys, Girls http://t.co/zHiCmchK My brother ran a school for boys; much better than co-ed $$ Sep 05, 2012
  • Fed’s unemployment target is unrealistic http://t.co/1edPuBTC Global labor competition will keep unemployment high, until exports get big $$ Sep 05, 2012
  • The Clinton Administration did not offer as much public debt, Social Security was running its largest… http://t.co/mySuAvk1 Sep 05, 2012
  • As I said with the Republican Convention, I am very glad that I don’t own a TV. I would rather consider the merits than emotional appeals $$ Sep 05, 2012
  • They grow so fast, treasure them while you can $$ RT @TheStalwart: The Obama daughters have aged a lot. http://t.co/2IguOJdj Sep 05, 2012
  • A radical tax plan the left and right can agree on http://t.co/84PA1xpp Cut corporate tax rates & eliminate all special preferences $$ Sep 04, 2012
  • If You Think Obama?s First Term Was Bad, Imagine a Second http://t.co/4iFeFAfc Same applies to Romney; we will have gridlock either way $$ Sep 04, 2012
  • Why Bernanke has become irrelevant http://t.co/dN9b6kVP Inflating financial assets also inflates financial liabilities &so it does little $$ Sep 04, 2012
  • Putin to Raise Government Retirement Age to 70 http://t.co/TtluvkN0 We should also. Y should young ppl subsidize oldsters who could work Sep 04, 2012
  • The Democrats? Version of Mediscare http://t.co/rRUwEf7s Agreement btw Reps & Dems: cut medicare. The Q is how to do it? $$ Sep 04, 2012
  • Long term real rates in the US hit record lows http://t.co/WQns2veU Can you say “financial Repression,” boys & girls? I thought you could $$ Sep 04, 2012
  • Gloria Romero: Trials of a Democratic Reformer http://t.co/Hblx3Plk Unions (SEIU, CTA, the CA school employees) dominate $$ in Sacto $$ Sep 01, 2012
  • California Lawmakers Send Public-Pension Cutback to Brown http://t.co/pn3uXnjj First, prospective change, next retrospective on actives $$ Sep 01, 2012
  • The duopoly doesn’t like interlopers playing on their turf $$ RT @LaurenLaCapra: Why Is Gary Johnson Being Ignored? http://t.co/qgXnrC49 Sep 01, 2012

The Markets

 

  • Asset Allocation & Portfolio Management: Is the Industry Shifting to a New Paradigm? http://t.co/u69lGilE 2 complex; parameters unstable $$ Sep 08, 2012
  • Student Loans: Debt for Life http://t.co/sd4aNaDo With student loans not dischargable in bankruptcy many students end up debt-slaves $$ Sep 07, 2012
  • Commodities Beat Stocks, Bonds for Second Month in August http://t.co/3Ydp0q3t Anticipated inflation (via TIPS) rising over last 2 months $$ Sep 03, 2012
  • Should You Wade In With a Windfall? http://t.co/lprP4FbX A perpetual debate; best to decide on your asset allocation and invest $$ Sep 03, 2012
  • Are You Making Too Much Money? http://t.co/5uoVQMTF Cramer points out that when a strategy is working too well -> greater prob of blowup $$ Sep 01, 2012

 

Lenders, Insurers, and Housing

 

  • Hedge funds face autumn uncertainty http://t.co/lbTBS8Rx Hard not to be uncertain when deficits are high, monetary policy loose, & EZone $$ Sep 05, 2012
  • With Lax Regulation, a Risky Industry Flourishes Offshore http://t.co/C3RUhCQD Bermuda reinsurers r better managed than largest US banks $$ Sep 05, 2012
  • Assessing Fannie’s Past and Future http://t.co/v5c8Y2QS Sadly, ending the role of the US Govt in lending $$ is not a listed option. Sep 04, 2012
  • Home Prices Are Not Rebounding as Fast as You Think http://t.co/qrYYciDr Market will have to digest a lot of dark supply, post-bottom $$ Sep 04, 2012
  • Breaking Up Banks Is Hard With Traders Hooked on Deposits http://t.co/CtcyqaiH WIll b made up reducing diseconomies of scale $$ #breakthem Sep 04, 2012
  • Bad headline: Nine Insurers Boast Gains On Facebook Positions http://t.co/8rsBZfe1 Read the story: most insurers owning $FB lost $$ Sep 04, 2012
  • Big Banks Are Hazardous to U.S. Financial Health http://t.co/8CxiiLqb Implicit promise of US rescue allows large banks to finance cheap $$ Sep 03, 2012
  • Fighting financial complexity with simple rules? http://t.co/nU1ypbgK Limit leverage, interconnectedness, analyze risk-based liquidity $$ Sep 03, 2012
  • Ranking the Largest U.S. Banks: M&T No. 17 With a Bullet http://t.co/dBLM8EBY Look at how large the top 4 r relative to everyone else $$ Sep 03, 2012
  • Index points to new dawn for US housing http://t.co/c04HLluw There is a lot of dark supply to clear, but bottom has passed on low end $$ Sep 03, 2012
  • Melbourne Hasn?t Seen Worst of Housing Drop as Glut Builds http://t.co/wJRlFbeR I’m sure glut is temporary, “Contained” & banks r fine 😉 Sep 01, 2012

 

Energy

 

  • Shale Boom Cuts Gulf Oil Premium to 24-Year Low http://t.co/O738xxOI Whouda thunk oil production would increase in the US? $$ Sep 07, 2012
  • “Green energy ‘is a big area of unfulfilled promise,'” aka “crazy inefficient dreaming.” Send them to study physics $$ http://t.co/VAsgEdVz Sep 04, 2012
  • RE: Natural gas prices have fallen; that is most of the new energy produced. Little oil so gasoline prices stay high. http://t.co/XCZBTmSR Sep 03, 2012

?

Other

 

  • Stanford researchers’ cooling glove ‘better than steroids’ & helps solve physiological mystery, too http://t.co/D5CqAU9x Muscles overheat $$ Sep 07, 2012
  • FBI vs. Google: The Legal Fight to Unlock Phones http://t.co/i2VbdISV Interesting that $GOOG resists requests 4 smartphone passwords $$ Sep 07, 2012
  • Malware attacks on the rise http://t.co/fzKcSqe8 Now coming to a handheld device near you. Try to decide on a ransom strategy early $$ Sep 04, 2012
  • Awkward Belly Dance for Groupon http://t.co/sCxGrpKo As if $GRPN doesn’t have enough troubles, two large founders back a competitor $$ Sep 04, 2012
  • China, Germany plan to settle more trade in yuan, euros http://t.co/DFtNGvxi Settling $$ doesn’t matter, where proceeds r invested matters Sep 03, 2012
  • The Federal Reserve: From Central Bank to Central Planner http://t.co/YQxbQLq2 The more tasks we give to the Fed, the worse they do $$ Sep 03, 2012
  • You Can’t Trust Airport Security http://t.co/TWGMUwP1 Security systems must balance risks of false positives vs missing positives $$ Sep 03, 2012

?

BloombergView Hypocrisy

  • You Pick: a Strong Recovery or an Accountable Fed? http://t.co/VhxdKBH1 The Fed could b genuinely transparent & the economy prosperous $$ Sep 05, 2012
  • Republicans Must Choose: Less Debt or More Jobs? http://t.co/qkV2TPAU The 2r not related. Proceeds of debt do not lead2 hiring necessarily Sep 05, 2012
  • @bloombergview , master of the false dichotomy headline: Republicans Must Choose: Less Debt or More Jobs? http://t.co/qkV2TPAU $$ Sep 05, 2012
  • @bloombergview , master of the false dichotomy headline: “You Pick: a Strong Recovery or an Accountable Fed?” http://t.co/VhxdKBH1 Sep 05, 2012

?

Retirement

 

  • Big Firms a Drag on Pension Funds http://t.co/Q1hchNbH Returns at larger private equity funds have lagged their smaller brethren $$ Sep 07, 2012
  • Retirement security is a big problem — especially for the young http://t.co/DxTcvg4O The developed world lives in a fantasy re: retirement Sep 05, 2012
  • San Jose Cops Rush Disability Retirement Bids as Rules Tighten http://t.co/jSKWSiaQ & I’ll bet the actuary never priced 100% disability $$ Sep 05, 2012

 

Follow

  • #FF @cabaum1 @HousingWire @journalistjosh @LizRappaport @CardiffGarcia @simonconstable @agnestcrane @WSJTheSource @maoxian @jsphctrl $$ Sep 07, 2012
  • #FF @footnoted @LSPollack @MattGoldstein26 @munilass @williamalden @JeffreyMatthews @PragCapitalist @neilbarofsky @MKTWBurton @petereavis $$ Sep 07, 2012
  • @lv_1 I’m doing 1 of these per day listing my favorite tweeps, some of which are lesser known; last group is mostly economics Sep 06, 2012
  • It’s not Friday, but please follow: @GonzaloLiraSPG @rajivatbarnard @John_Hempton @SoberLook @groditi @unstructuredfin @historysquared $$ Sep 06, 2012
  • It’s not Friday but please follow: @finemrespice @prchovanec @vshih2 @BoydRoddy @dpinsen @niubi @manualofideas @wesbury @merrillmatter $$ Sep 03, 2012

?

Retweets

  • A permanent problem in a dynamic language $$ RT @BloombergView: These are sad times for grammatical purists | http://t.co/Se0XfLCD Sep 07, 2012
  • RT @DennisDMZ: Obama thanked Biden for being “the best VP I could have hoped for.” Proof that America really has become the land of dimi … Sep 07, 2012
  • Their headlines mislead more than most RT @LaurenLaCapra: This Bloomberg headline is not only weird, but questionable. http://t.co/0CKK9ATE Sep 05, 2012
  • Worth a read $$ RT @TheStalwart: This strikes me as an interesting contribution to the profit margins debate. http://t.co/Bt5S9ZrF Sep 05, 2012
  • RT @PlanMaestro: Very good takedown of Taibbi’s Bain Capital piece. There is a story in there just not this one http://t.co/he0VaYo4 @da … Sep 05, 2012
  • Oops $$ RT @SecurityTube: [News] BitCoin Exchange Loses $250,0000 [sic] After Unencrypted Keys Stolen http://t.co/Yt2l7bp3 Sep 05, 2012
  • How many divisions does Draghi have? MT @TheStalwart: The Most Powerful Man In The World Is Going To Speak Tomorrow. So Is Barack Obama $$ Sep 05, 2012
  • Also worth a look $$ RT @_TPR: One of my favorite tables: Shadow Banking Depositors. The plumbing. http://t.co/i6UVAJan Sep 05, 2012
  • Worth a look $$ RT @_TPR: Another: Credit-Maturity Transformation Spectrum http://t.co/F98xEbgP Sep 05, 2012
  • RT @NickTimiraos: CoreLogic index shows that home prices are now 1.3% above Jan 2009 level. Down 0.7% from June 2010 (tax credit induced … Sep 04, 2012
  • RT @TheStalwart: RT @conorsen: @TheStalwart @diana_olick You should probably have

an auto-RT app for Diana’s stuff. Sep 04, 2012

  • RT @ReformedBroker: As the politicians descend on Charlotte, Carolinians come face to face with more pork than they’ve ever pulled. #DNC2012 Sep 04, 2012
  • Good one, made me smile. $$ RT @pdacosta: This euro crisis thing is really Draghing out. Sep 03, 2012
  • My but Congress was farsighted to recognize a banking benchmark & celebrate! $$ RT @ReformedBroker: HAPPY LIBOR DAY EVERYONE!!!!!!!!!!!!! Sep 03, 2012
  • RT @mbusigin: You know what’s going to happen? People going to pile into Risk Parity strategies just in time for yield volatility modera … Sep 01, 2012
  • RT @simonconstable: ?@Mctaguej: Connaughton is a loyal Democrat–but he pulls no punches in his expose of Obama’s failure to pursue Wall … Sep 01, 2012
  • RT @Convertbond: Thought we had an aging population Ben Bernanke? How many jobs have been lost because 150 mln baby boomers are earning … Sep 01, 2012

 

Comments

  • @BradErvin1 Fair point; we have skills mismatch here as well, & income differences among regions; not as pronounced though, adjusts better Sep 08, 2012
  • @crampell My son thanks you for that article. He runs and the trainers ice him down after practice; going to show it to his coach Sep 07, 2012
  • @ToshibaEric Thanks 4 replying. Talked to 10 people @ Toshiba before I got someone to send me a free mailing box for repairs ~ 2 hours $$ Sep 07, 2012
  • @toshiba also aggravating sitting on hold, getting dropped three times, and representatives hiding behind the legalese Sep 07, 2012
  • @toshiba Really aggravating dealing with your phone support for a new computer that fails on day one, and you do not offer replacement $$ Sep 07, 2012
  • ‘ @Fullcarry It’s kind of like the “pop” that happens when a distressed credit does an equity offering in order to survive. $$ Sep 07, 2012
  • @niubi Perhaps because that would be blocked. China does not want people 2know how much diverse information 2which they do not have access Sep 07, 2012
  • @credittrader The cash he receives will be used to collateralize an account invested in stock index futures $$ 😉 #nevercashonsidelines Sep 05, 2012
  • @moorehn Could we pass a law that all politicians have to write their own speeches, so that they say is more likely what they really think? Sep 05, 2012
  • @_TPR Okay, so I have missed something. I trust Bermuda; I do not trust Ireland as a regulator. Who has moved? $$ Sep 05, 2012
  • @finemrespice Some technological breakthroughs e.g. http://t.co/F4jeyerr, but no 1 mentions costs. Technical efficiency <> Econ progress $$ Sep 04, 2012
  • I just left a comment in “How Pimco?s Gross beats the average bond fund – Mutual Understanding – MarketWatch” http://t.co/Nfq2s7Un Sep 04, 2012
  • We need a new misery index that includes the future pain of present borrowing. At least Carter kept… http://t.co/honmBXQ5 Sep 04, 2012
  • 2, 4, and 6 are not myths. The others are. There are limits to what the government can do. They must tax or… http://t.co/JPa4IGqW Sep 04, 2012
  • Alas, modern worship, odious to God. Bring back a cappella singing of Psalms, like the ancient church.? Also, giving ? http://t.co/OBAwBJnx Sep 04, 2012
  • It is rational for lower-level German politicians to say Greece must leave the Euro. It is what an average German be? http://t.co/6UUYd6e9 Sep 04, 2012

 

Book Review: The Payoff

Book Review: The Payoff

Posted on by David Merkel

How cynical are you? How close have you been to politics in DC?

I know a lot of people who work for the US Government directly or indirectly, and they are astounded at the waste and fraud.? They are honest people, and it weighs on them.

The more I watch it, the more I think that power needs to come back to the states, and slim the Federal Government.

Now, I’m a libertarian of sorts, but what if you come to discover this as a “true blue” member of the Democratic Party?

Most people initially come to politics idealistically, and so did the author, inspired by… Joe Biden.? Now, with Mr. Biden, I did not see the thrill when I was younger.? Yes, there was more complex rhetoric, but nothing materially different then compliance with the particulars of the coalition backing the Democrats.

Be that as it may, the author went through many changes in supporting Biden and the Democratic Party.? Here’s his bio:

Jeff Connaughton holds an MBA with honors from the university of Chicago and a JD from Stanford Law school. He worked for four years as an investment banker, first at Smith Barney and then at E. F. Hutton. in 1987, he joined Joe Biden?s presidential campaign as Deputy national Finance Director and thereafter became his special Assistant when Biden chaired the senate Judiciary Committee. After graduating from Stanford, Connaughton clerked for Chief Judge Abner Mikva of the united states Court of Appeals for the DC Circuit, then followed Mikva as his special Assistant when Mikva was appointed Counsel to President Bill Clinton. in 2000, along with Jack Quinn and Ed Gillespie, Connaughton founded Quinn Gillespie & Associates, one of DC?s premier lobbying firms. He lives in Savannah, Georgia.

That’s a lot of change in 20+ years.? The book takes you from his early days, interleaving the recent versus the past, until we get to the financial crisis, at which point, the author’s faith in the Democratic Party is severely tested.? He never abandons his principles, but he grieves for his party.

His real crisis comes after Barack Obama is elected with Joe Biden as VP, and he and his boss are excluded because they have been lobbyists.? But the boss is appointed to fill the Senate seat of Joe Biden, and the author comes along as his senior aide.

They have two years to do what is right, uncorrupted by the money of politics, because he isn’t running for re-election.

They take on High Frequency trading.? Regardless of tighter spreads, is the amount offered at the spread similar-sized, or smaller?? Further, what happens in a crisis?? Do the market makers and specialists hold to their roles, or conveniently abandon them, amid crisis.? The latter seems to be true.? The philosophy is: to the degree that we have laws providing structure to markets, so that many people can trade easily, knowing that things are basically fair, we must review all practices that give unfair advantages to some.

In the process of trying to reform HFT, Ted worries that something like the “flash crash” will happen in advance of its occurrence, further burnishing his reputation as a thinker on markets.? Ted Kauffman asked: who is served by ever-greater liquidity? (P. 185)? From my angle, studies need to be done studying “percentage liquidity” seeing how spreads divided by average bid/ask size have to be done — narrow spreads don’t mean much if you can’t do much volume there.

On pages 204-5 of the book, it describes the gamut of Ted’s ambitions regarding the financial crisis:

Back in the senate, Ted had three great insights.? First, this wasn?t a time for vague legislation that kicks the can back to the very regulators who?d failed in the lead-up to the crisis; Congress needed to draw hard statutory lines, just as it had during the great Depression. Second, Wall street?s inherent conflicts of interest had to be resolved through structural reform, such as by reinstating Glass-Steagall or imposing size and leverage limits. Third, he wanted to take the fight straight to the megabanks on too-big-to-fail, making Wall street defend against structural reforms it opposed,at least to increase the chance that other provisions opposed by the banks, like the Consumer Financial Protection Bureau, would pass.

One thing he knew that I knew then and now.? The banking regulators did not use the tools that they had to do their jobs.? They were quiet accomplices as the leverage bubble built.

On page 228, Ted introduces “…the safe Banking Act of 2010, the Brown-Kaufman amendment would have put limits on the
size of and leverage used by megabanks by:

  • imposing a strict 10 percent cap on any bank holding company?s share of the united states? total insured deposits;
  • limiting the size of non-deposit liabilities at financial institutions (to 2 percent of U.S. GDP for banks, and 3 percent of GDP for non-bank institutions);
  • setting into law a 6 percent leverage limit for bank holding companies and selected non-bank financial institutions.”

The most radical of the proposals is the middle one, which aimed to limit repo financing at financial institutions; it would have been much more effective than the Volcker Rule.? Most of the problems in a financial crisis stem from short-term liabilities financing long-term assets.? This attempts to address the short-term liabilities that do not stem from deposits.

As the author comments on page 229:

Remarkably, although there is a prudential cap on the amount of deposits the largest banks can hold, nothing limits bank liabilities like repos, which often must be rolled over every day.

This is insightful, and the insight should be extended to securities lending, and derivatives, where margining must be adjusted day-by-day.

As Ted proposes breaking up the too big to fail banks, he runs into a lot of resistance.? This includes pseudo-intellectuals like Larry Summers who argues on page 234:

Summers?s [sic] second argument was that, if we broke up the megabanks into smaller banks, ?it would actually make us less stable. Because the individual banks would be less diversified, they would be at greater risk of failing because they wouldn?t have profits in one area to turn to when a different area got in trouble.?

What Summers didn’t get is that complexity creates more risks than diversification erases.? Complex banks are typically not well-managed as far as bad times are concerned; diversification disappears during the crisis.? And if we had a lot of small banks, yes, we would have more failures, but no, the system would be more secure.? The system is at risk from the 4 to 20 banks that are so large that the US Government must bail them out.

As it was the Brown-Kauffman amendment failed, and a pity that it did.? Would that it had become law, as opposed to the watered-down “Volcker Rule.”

At the end the author leaves DC after his patron leaves office, and restarts his life in Savannah, Georgia.? He adjusts to the happiness of life outside the Beltway, and realizes that a life outside of politics can be pleasant.

Quibbles

Page 149 — there is no way that short-selling is behind 50% of trading on a normal basis.? If that is true, I have to rethink a lot.

Page 152 — Even with naked short selling, it is really difficult to move a stock’s price down.? I would encourage the SEC to try some experiments where they nakedly short a stock, and see if they can make money off it.? I bet they can’t.

Page 179 — spelling error: peak s/b peek.

Who would benefit from this book: ? This book will tell you how much DC is in thrall to the power of money.? Doesn’t matter which party, their ideals are up for sale.? If you want to, you can buy it here:?The Payoff: Why Wall Street Always Wins.

Full disclosure: The author’s PR Flack sent me a PDF file of the book.

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